The Impact of Russia's Invasion of Ukraine on the Capital Markets from the CEE Countries

The price of stocks is a good indication of investors' expectations for the evolution of capital markets, comprising their fears and hopes regarding future developments. The information regarding a disruptive event such as a military attack spreads rapidly across countries affecting investors' perceptions and causing them to sell their stocks and target safer investments. The scientific literature on the topic is growing lately due to the ongoing Russo-Ukrainian war and its consequences. The research paper investigates the impact of Russia's invasion of Ukraine on the capital markets from the Central and Eastern European region using the event study methodology. The paper studies the abnormal returns recorded by each capital market on the event day (February 24, 2022), as well as the cumulative abnormal returns for 6-day, 11-day and 16-day event windows following the attack. The findings show that most of the capital markets recorded sharp declines on the event-day, reaching a negative abnormal return event of 10% on February 24. For the longer event windows the negative impact persisted through cumulative abnormal returns recorded for most of the markets. The highest declines were recorded on the 6-day and 11-day event windows as all capital markets considered incorporating the bad news of the war outbreak and lost the initial hope of being a disinformation or a short-term military attack. Within 35 trading days following the invasion, 64% of the markets rebounded and returned to their pre-attack level. However, 4 capital markets recorded more than 200 trading days with a level lower than the one registered before the invasion. The paper contributes to literature extending the studies of capital markets' behavior during military conflicts focusing on neighboring countries.